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The European Union’s Fourth Anti-Money Laundering Directive (EU4MLD) has been implemented into UK law as of 26th June 2017. Relevant legislation includes the Money Laundering Regulations, Policing and Crime Act and the Proceeds of Crime Act. The directive includes fundamental changes to AML procedures at law firms, including changes to Customer Due Diligence (CDD) and a strong focus on risk assessments.

What is changing?

Under EU3MLD and the current Money Laundering Regulations, firms could automatically apply simplified CDD under certain circumstances. Under the new regulations, firms will be able to use these circumstances as a partial justification for simplified CDD only after conducting a documented risk assessment.

Exemption from enhanced CDD is no longer automatic, a decision to apply simplified CDD will need to be evidenced by a documented risk assessment and include PEP and Financial Sanctions screening. Local politically-exposed persons (PEPs) must now be identified and will be subject to the same scrutiny as foreign PEPs. The regulations direct firms to develop risk-based policies, and practitioners to conduct client risk assessments as a part of their CDD.

Here, we’ve answered some frequently asked questions to help you understand exactly what these changes and implications mean for your firm:

What do the regulations mean?

• There is no longer an automatic exemption from undertaking Enhanced Due Diligence

If, like many firms, you simply take a copy of a Client's identity documents, your procedures and processes are likely to have to change significantly to be able demonstrate your compliance with the new regulations and laws.

The regulations are clear – there is no longer an automatic exemption from undertaking Enhanced Due Diligence, as opposed to Simplified Due Diligence, which has often been carried out by simply obtaining a copy of a Client's Identity documents, for example a Passport and Driving License.

• Firms will be required to evidence they have identified the Client and screened them against alert sources

After 26th June, you will need to demonstrate compliance by being able to evidence that you have risk assessed clients in accordance with the regulatory requirements. Therefore, clients who would have previously been on-boarded using Simplified Due Diligence must be Risk Assessed, with a minimum requirement of documenting and confirming the Clients Identity and electronically screening them for Financial Sanctions and Politically Exposed Persons (PEP) – including UK nationals.

• Additional requirements for on-going due diligence monitoring

There are additional requirements for the period of time that your firm will have to be able to demonstrate and deliver up to regulators your compliance records in relation to specific clients, on-going due diligence monitoring and how long records may be kept.

What are the penalties for failing to comply?

The penalties for failing to comply with obligations under the new regulations have been increased.

In addition to penalties that can be imposed by regulators and other legislation, the Policing and Crime Act 2017 has increased fines up to £1,000,000 and prison sentences from 2 to 7 years; where 'the person has breached a prohibition, or failed to comply with an obligation, that is imposed by or under financial sanctions legislation'.

AML Search v4 has been designed to meet and exceed Anti-Money Laundering compliance requirements including but not limited to;

• Fourth European Money Laundering Directive (EU 4MLD)

• United Kingdom Money Laundering Regulations/Laws

• Joint Money Laundering Steering Group (JMLSG)

• The Law Society

• The Solicitors Regulatory Authority (SRA)

• Financial Conduct Authority (FCA)

• International Bar Association (IBA)

• Financial Action Task Force (FATF)

• Council of Mortgage Lenders (CML)

• Sarbanes–Oxley

• Risk Assessments

Regulations make it mandatory for firms to carry out Risk Assessments on their Clients as a part of their Client Due Diligence (CDD).

AML Search v4 automates Customer Due Diligence Risk Assessments to enable your users to simply and quickly enter Client data, include documentary evidence and carry out a Risk Assessment and Simplified or Enhanced Due Diligence in a few minutes.

AML Search v2 provides Enhanced Customer Due Diligence Searches which are fully compliant with the new regulations. There are however other changes that you need to consider including how you will carry out Risk Assessments, On-Going CDD, record keeping and reporting in order to demonstrate your firm’s compliance.

Can I continue to use AML Search v2?

Yes.

It is recommended that you review your Risk Assessment procedures in line with the new regulations. The regulations stipulate that there is no longer an exemption from Enhanced Due Diligence. Therefore, clients who would have previously been on-boarded using Simplified Due Diligence must be Risk Assessed, with a minimum requirement of documenting and confirming the Clients Identity and electronically screening them for Financial Sanctions and Politically Exposed Persons (PEP) – including UK nationals.

AML Search v2 already provides all of the features for enhanced CDD with the exception of documented Client Risk Assessments which must be carried out manually by firms if using AML Search v2 – AML Search v4 provides fully automated Risk Assessments.

Should I review our Risk Assessment Criteria and Procedures?

Yes.

There are significant changes in the regulations as to how you are required to Risk Assess your Clients, carry out On-going Due Diligence, how quickly firms must demonstrate their compliant procedures and how long records can be kept.

Why should I upgrade from AML Search v2 to AML Search v4?

AML Search v4 extends the features of AML Search v2 adding robust compliance tools to reduce the time and cost to firms of implementing, maintaining and running compliant AML procedures.

These include automated Client Risk Assessments, Simplified and Enhanced Due Diligence for individuals and organisations (UK and International).

This means that you can complete the process of carrying out a Risk Assessment and Customer Due Diligence by running an AML v4 Risk Assessment, ensuring you can demonstrate compliant procedures across all users.

AML Search v4 also includes your real-time compliance status and reporting, on-going due diligence monitoring, which ensures your client due diligence is always up-to-date, document, file and archive management to ensure you meet the new record keeping criteria.

tmgroup have announced a unique CPD series that aims to help conveyancers understand why 'they're worth it'. Register >

tmgroup are on a mission to help conveyancers claim what is rightfully theirs, with a new events programme called ‘Because You’re Worth It.’

The programme is designed to help conveyancers to ensure that their client sees the value in the service they offer, from setting up new business relationships through to demonstrating the breadth of support and knowledge you bring when helping them buy the right property.

The sessions will stress the importance of firms using their in-house expertise to maximise their customer service as well as ensuring they market their services effectively by communicating their unique values. Just 1 in 10 home movers chose the conveyancer that quoted the cheapest fees last year, so it would appear that conveyancing clients understand what represents value for money and are certainly willing to pay for what they consider to be good service.

Indeed, in a competitive sector with many challengers, traditional law firms are in a great position to understand what clients want and how they can present themselves attractively to win more business and improve service to keep clients happy and tmgroup have created this programme to help conveyancing firms do just that.

Sales & marketing director at tmgroup, Ben Harris said:“We are passionate about making sure that conveyancers understand how to communicate their value to prospective clients and then prove this through every interaction with a client. We’re delighted to bring this exciting and unique CPD programme to conveyancers in which our experts will arm them with the tools they need to assess their current position and make the most of the opportunity.”

With experts from across the sector, the first seminars will take place on June 22nd and 23rd in Birmingham and Bristol with more to follow later in the year.

tmgroup have been welcomed as members of the Legal Software Suppliers Association (LSSA).

As the UK’s leading representative body for legal systems developers and vendors, the Legal Software Suppliers Association (LSSA) sets and maintains professional standards within the industry and manages areas of mutual interest between lawyers and software providers.

tmgroup lead the market in providing online solutions for conveyancers, helping them access information, take control, manage risk and increase efficiency. This forms a great synergy with the LSSA’s commitment to developing clear channels of communication so that law firms can gain the maximum benefit from their selected software solutions.

Matthew Lancaster, Chair of the LSSA said:

"The LSSA warmly welcomes tmgroup to the Association and we are very much looking forward to working with them as part of the group.”

tmgroup Managing Director Paul Albone said:

“We see collaboration amongst suppliers in the industry as a vital part of improving the way technology can help to streamline processes and with the Law Society stating in their 2020 vision the need for technological and process innovation, both tmgroup and the LSSA membership are well positioned to support the legal sector.”

When the Law Society asked about the adoption of the new capital allowances legislation 37% of respondents said that they felt it was not the solicitor's responsibility to establish a position on capital allowances for a given property.

A further 18% did not yet realise that it is the solicitor’s responsibility to do this and have made limited progress in complying with the new legislation.

So, in total, 55% of the poll had an issue with complying with the April 2014 capital allowance practice note.

All of this is very similar to the TM Group research which found that 52% of respondents answered "What Practice Note?" and less than 10% were 'finding it easy to fulfil their obligations'.

• Only 20% of solicitors said they know everything they need to know about the Capital Allowance 2014 changes.

• 70% admitted they would like to know more.

The other consistent theme from the Law Society's report was that clients are also unaware of capital allowances and the tax relief they can claim, which is backed up with 40% of law firms saying that their client never raises the issue during a transaction.

Is this because clients view capital allowances as a complication that delays matters rather than a benefit, albeit in the longer term?

But it doesn’t have to be like this with the client uninterested and the solicitor failing to comply with legislation; potentially exposing themselves to a negligence claim.

Practical ways of helping your clients with Capital Allowances

Add some wording into the client care letter, maybe the firm could offer some form of assistance to complete Section 32 of the CPSE.1? Certainly it's a good idea to raise the issue as early as possible in the transaction.

An easy way to help and be able to demonstrate your compliance is to obtain a search.

In the same way you do with the Contaminated Land and Flooding Practice Note, you can order a Capital Allowance Check which can be passed onto the client to help them get underway with some information which they can pass onto their tax advisors.

TM have launched a commercial search at £50 and a residential one at £15 which, with some additional information from the client, can be returned in hours. Simply login to the system to order or contact us to set you up with a account.

The issues associated with capital allowances are not going to go away and nor is the duty that solicitors have to their clients since the April 2014 changes.

The process for determining allowances can be improved quite quickly, with very little upheaval to you or your firm's existing processes. A few simple steps like the ones above could certainly help both solicitors and clients alike.

Recent research from TM Group suggests that for many the issue of Capital Allowances has snuck in under the radar.

From research conducted in February 2015, when asked ‘How easy are you finding it to carry out your requirements as set out in the Law Society Practice Note on Capital Allowances?’ 52% percent of respondents answered ‘What Practice Note?!’ and less than 10% were finding it easy to fulfil their obligations. Read the original poll here.

"So what?" you may think, "this is a complex tax area, so isn’t it dealt with via tax specialists?"

The answer is yes but actually, later in the process, conveyancers are involved and are required to be proactive from the very start, thanks to the Practice Note.

Since April 2014 - so, nearly a year ago - whether you are acting for a buyer or a seller you should be raising the issue of Capital Allowances with your client as early as possible in the transaction. Why? Well, it can take time to put all of the documentation together but, more importantly, failing to advise the client could result in delays or financial loss to them.

Also, to reinforce the point, after 1 April 2014 if you sell a property but haven’t identified the available allowances and the client then claimed them via their tax return the unclaimed allowances are lost for the seller, the buyer and any future owner of the property.

Without unnecessary scaremongering, non-compliance of the Practice Note and subsequent loss of the Capital Allowance could lead to some quite high claims from clients, potentially running into tens of thousands of pounds.

You should also look to add some information into the client care letter. But how can you easily demonstrate that you have advised your client and discharged your duties in this area?

My answer would be in the same way you do with the contaminated land and flooding: with a search that can be passed onto the client to help them in this matter and get them underway with some information which they can pass onto their tax advisors.

TM have launched a commercial search at £50 and a residential one at £15 which, with some additional information from the client, can be returned in hours.

Not only can your client start their claim early in the transaction, or cost-effectively show that there isn’t a claim but, as a solicitor, you can very easily demonstrate that you have carried out your duties as set out by the Law Society.

If you would like some more information on this new search please contact your account manager or the TM Group helpdesk on 0844 249 9200 and helpdesk@tmgroup.co.uk.

The Council of Mortgage Lenders (CML) has announced the most substantial revisions to the lender handbook in more than a decade.

33 sections of part 1 of the handbook (accounting for more than 10%) will see revisions - the most since the second edition of the handbook was launched in 2002.

In turn, the CML has instructed all mortgage lenders to update their specific requirements that form the part 2s and have promised that these changes will be available through their website from 1st December 2014.

Law firms need to be aware of their attractiveness to criminals who seek to launder the proceeds of crime through conveyancing transactions. Image copyright Images Money.

The Solicitors’ Regulation Authority (SRA) is stepping up its efforts to ensure that law firms do not become embroiled in money laundering activity and are compliant with the various regulations and legislation associated with anti-money laundering compliance.

In their Risk Outlook 2014-15, published in July, the SRA highlighted how law firms are an attractive vehicle through which to launder the proceeds of crime, such is the magnitude of funds being transferred by legal practices.

Property remains by far and away the work type that attracts the most claims against solicitors. Over the last few years, property claims represent around 40% of all claims, although this peaked at 60% in 2010.

Accreditation such Lexcel and CQS will be viewed positively, but the single biggest factor is that risk management cannot just a tick-box exercise; it has to be engrained within the culture of the firm.

Strong case management processes and procedures, case supervision and checklists are all important and, with PII renewal on the horizon, it may be timely to let underwriters know how you manage various risks in the conveyancing process.

There are many ways to help reduce the level of risk associated with conveyancing transactions, here's five of them: